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Is USA airport retailing about to be revolutionised?

Air travel is big business. With global passenger numbers predicted to double to 14.6bn per annum by 2029, and exceed 23bn by 2040 (source: ACI), it is set to get much, much bigger.

Whilst this undoubtedly presents operational capacity challenges for many airports, it also offers opportunities to capitalise on this growth through more effective commercial and digital engagement, especially as the majority of the increase in volume is expected to come from typically higher spending international passengers, who are predicted to outnumber their domestic counterparts from 2028.

USA airports offer a poor passenger experience with retail revenues much lower than airports elsewhere

The USA is a unique segment in the airport world, as it has a very mature market that is predominantly driven by domestic traffic. Passengers use airports like bus stops – dwell time is short and the commercial offer is largely ubiquitous and very basic. Importantly, the passenger experience tends to be poor, with many USA air terminals described as resembling airports in third world countries.

As a consequence, ‘retail’ currently accounts for only 9% of non-aeronautical revenues, compared to 55% in the Middle East (source: Moodie), and spend per passenger is around half that of passengers in the rest of the world (source: Verdict). Given that the USA is one of the world’s most advanced consumer societies and with a pioneering retail economy, something does not seem quite right!

Some USA airports, such as LAX and LaGuardia, are beginning to realise their commercial potential

Recently, some USA airports have begun to sense a long missed business opportunity and therefore looked elsewhere for inspiration. Westfield’s Tom Bradley Terminal at LAX, for example, opened in 2013, and has since won international recognition for its concession design programme. The customer experience features ‘vibrant design, inviting atmosphere, open sightlines and integrated dining and retail’, and the Integrated Environmental Media System (IEMS) presents a revenue platform for the airport, which develops a dynamic brand expression for LAX, and provides an intelligent media environment unique to any airport.

Similarly, the privatisation of LaGuardia’s Central Terminal Building (CTB) has opened the gates for investment in airport infrastructure that will enhance the passenger environment and seeks to drive a return on investment supported through an enhanced commercial offer.

Recognising the commercial potential of airports has many benefits for passengers and operators alike:

  1. Growing commercial revenues helps to diversify non-aeronautical income streams, and lowers the reliance on aeronautical charges such as landing fees, which benefit passengers as air fares can remain more affordable
  2. Revamping the commercial environment creates a more pleasant passenger experience that encourages longer dwell, and this in turn leads to greater spend per passenger
  3. By using data and analytics, airports know a lot about their passengers – who tend to be of a higher social grade than the national average – so airports present a golden opportunity for retailers and brands that value the opportunity to speak to a clearly defined, high-spending audience. It is no coincidence that John Lewis, a leading British retailer operating department stores across the UK, opened an innovative unit format at Heathrow’s new T2
  4. Airports are often the first or last impression that a passenger has of the host city, so making a statement and creating a worthy ‘welcome’ sends an important message to the world

Airport retailing in the USA has accelerated in recent years, but the market remains unique and will continue to challenge the commercial teams to be inspired by global best practice, whilst still making it relevant to its unique set of passengers.

There is a true opportunity for USA airport retailing to be disruptive and set new global standards by not suffering from the burden of early success that has often slowed radical transformation in other markets, just because the model ‘still works’.

By understanding strengths and weaknesses in current trading, and the passenger mix with their unique needs and requirements, USA airports have an opportunity to recalibrate the commercial mix and reconsider passenger flows and layouts to benefit both commercial performance and passenger experience. True digital integration, innovation, flexibility and a focus on being meaningful could well start in the USA, as it jumps a retail generation.

For further information, please contact Robin Bevan.

FIND OUT MORE about Javelin Group’s Airports and Travel Hub Futures service line.